Apple Q1 results show why the iPhone doesn’t have LTE—yet (Updated)

Relatively few iPhone users would benefit from an LTE-equipped iPhone when you …

Apple released its iPhone 4S without high-speed LTE capabilities amidst a sea of high-profile LTE Android handsets. While technophiles complained about lack of support for the next-generation wireless standard, there are multiple reasons Apple has so far shied away from the technology. Poor battery life and lack of a suitable baseband processor to fit the iPhone's form factor are two reasons that have been cited by Apple in the past. But the company's most recent financial results offer another clear reason: the majority of iPhones sold today are in areas without 4G networks of any kind.

The US has one of the only significant LTE rollouts in the world. A few major cities in Canada, Sweden, and Saudi Arabia account for most of the rest of the global LTE network availability. Nearly all of Europe, Asia, South America, Africa, and Australia lack any LTE service outside of tiny test markets.

After looking at Apple's results for its fiscal first quarter of 2012, there's no question that the iPhone continues to be a success. The company sold a record 37 million handsets—as much as the two previous quarters combined, including the record 20 million sold in fiscal third quarter 2011. A large majority of those iPhones were sold outside the US.

Comparing Apple's revenue sources for the past two years, you can see that the iPhone is critical to Apple's bottom line.

Data: Apple financial results

Who would an LTE iPhone benefit?

According to fourth quarter 2011 results, AT&T activated 4.1 million iPhones, while Verizon activated 4.2 million. Sprint would not disclose the number of iPhones it activated last quarter, but we feel safe in assuming that number is less than 4 million. Assuming Sprint was able to activate (perhaps a generous) 2 million or so iPhones, only a little over a quarter of iPhones were sold in the US. The other three-quarters, then, are sold in areas with practically no LTE coverage.

(Editor's note/update 1/26/2012: The numbers used in the previous paragraph for AT&T's activations is incorrect, as they are from 2010. The fourth quarter 2011 numbers from AT&T show 7.6 million iPhone activations. Those numbers were released after this report was published, but they are relevant to the calculations in this article. With the new numbers, that means roughly 37 percent of iPhones sold last quarter were inside the US.)

Considering the US market alone, only Verizon has LTE service available to most of its customers. AT&T very recently turned on its first round of LTE towers in a few major US cities, though it will be well to the end of 2012 before its LTE network closes in on Verizon's. Sprint has a large 4G WiMAX footprint, but that is incompatible with the technology behind LTE. The company announced earlier this month that it would begin rolling out LTE in limited markets by the first half of 2012.

Since roughly less than half of US iPhone users would even have the chance of getting LTE reception, at most 15 percent or less of iPhone users globally could take advantage of 4G speeds. Though Apple has been known to occasionally make separate devices for different markets—for instance, you could get an iPhone 3GS without WiFi in China, or an iPhone 4S without a camera in Singapore—the company generally prefers to stick to a single device configuration whenever possible. So far, it just hasn't been practical to include LTE hardware in the iPhone when only a small fraction of users could benefit from it.

LTE iPhone sooner than later

Still, that doesn't mean other factors won't come into play that could bring LTE to the iPhone later this year or early next year. Qualcomm, Apple's current baseband supplier of choice, has new versions of chips with integrated LTE support coming this year. Similar in design to the chips currently in use in the iPhone 4S and iPad 2, the MDM9615 supports LTE category 3, HSPA+, and EV-DO rev B high-speed wireless networks. It's also manufactured on a 28nm process, offering significant size and power consumption advantages over existing single or multi-chip solutions.

The MDM9615 is supposed to be available in quantity to OEMs in this first quarter of 2012, so it's possible that chip could make it into a next-generation iPad expected around March or April, as well as a next-generation iPhone likely targeted for late summer or early fall.

Since the US will still be the only major LTE market throughout 2012, Apple might rely on one of two other possible strategies for LTE adoption. It may make iPhones using the newer Qualcomm chip specifically for the US and perhaps some of the few other LTE markets later this year. iPhones for the rest of the world may still use a chip that only includes compatibility with HSPA+ and EV-DO networks.

Alternately, Apple may hold out for greater LTE adoption among its carrier partners. This is similar to the situation with the original iPhone—that device launched with support for relatively slow 2G EDGE networks in 2007 instead of the faster, 3G UMTS networks more popular outside the US. As the iPhone became available globally, Apple added support for the faster standard in the iPhone 3G one year later. In this scenario, Apple may wait for a third-generation MDM9x25 series baseband chips from Qualcomm slated for 2013.

Though LTE has been seen as a competitive advantage for Android-based smartphones, the iPhone's lack of LTE compatibility clearly hasn't slowed down its brisk sales clip. Apple CEO Tim Cook claimed during Apple's quarterly analyst call on Tuesday that the company could have sold even more iPhones if it could keep up with demand. However, Apple won't be able to ignore LTE forever, particularly in the US. Where exactly the tipping point lies is uncertain, but we're betting on sooner rather than later.